Nokia's production facility in Chennai was established in 2006.Finnish mobile phone and network equipment manufacturer Nokia is set to dramatically downsize operations at its manufacturing facility in Chennai, south-eastern India, and is believed to be weighing up the closure of the facility.

Nokia has confirmed that it is to offer voluntary redundancy packages to all employees of the facility, stressing nonetheless that it will support the re-employment of the affected personnel.

Thereby, the Finnish company is aligning the workforce to correspond with the output of the facility, which employs nearly 7,000 people and churns out primarily low-cost handsets.

Last year, the former mobile phone behemoth opened a new manufacturing facility in Vietnam.

In addition, Nokia notes that the stability and predictability of the operating environment is a key factor in the ongoing effort to evaluate and adjust its manufacturing operations. The remark is, ostensibly, a reference to the recent demands of Indian tax authorities.

Tax authorities in Chennai, the state of Tamil Nadu, argue that Nokia has not exported a single handset in 2009—2011 and are consequently seeking roughly 300 million euros in back taxes. In addition, the authorities are demanding that Nokia make a guarantee deposit of nearly 700 million euros to ensure that the Chennai facility can be transferred, as planned, to Microsoft as part of its takeover of Nokia's handset business.

Goods manufactured for export in Tamil Nadu are exempt from value-added tax under state law.

In 2009—2011, the facility churned out a total of 410 million handsets, 275 million of which were according to Nokia shipped to 80 different countries. Customs documents, Nokia says, indicate unequivocally that the devices have been exported.

“The demand of the tax authorities is unfounded. We intend on defending our rights with all possible means,” states Timo Ihamuotila, the interim CEO at Nokia.

Petri Sajari – HS
Aleksi Teivainen – HT
Photo: Sari Gustafsson / Lehtikuva